Valuing animal genetic resources: a choice modeling application to indigenous cattle in Kenya

In an effort to improve productivity and profits, many farmers have replaced traditional livestock breeds with higher yielding alternatives. While such changes may bring about short‐term economic gains, the loss of traditional livestock breeds could result in the loss of an important genetic resource as a variety of important genetic traits adapted to local conditions gradually become less common in the population. This is a particular problem in Africa, where livestock make a substantial contribution to human livelihoods. Using the example of cattle in Kenya's pastoral livestock markets this study uses a choice experiment approach to investigate buyers' preferences for indigenous breeds such as the Maasai Zebu. The analysis employs a latent class approach to characterize heterogeneity in valuations both within and across respondents buying cattle for breeding, slaughter, or resale. The results show that there are at least three classes of buyers with distinct preferences for cattle traits and that most buyers favor exotic rather than indigenous breeds. Such preferences have implications for the conservation of indigenous cattle in Kenya and in other developing countries and suggest that some form of intervention may be required to ensure the preservation of this important animal genetic resource.     

Farm-gate tomato price negotiations under asymmetric information

This article provides an empirical analysis of farm‐gate tomato price negotiations under asymmetric information. Regression models are estimated to analyze when and by how much sellers stick to their initial ask prices and what explains the variation in the initial ask–offer price spread. Detailed information on 66 farm‐gate tomato transactions and daily tomato wholesale price data from the central vegetable market in Addis Ababa are used for the analysis. Estimation results show that farmers are less committed to their initial ask price when the buyer speaks out the transaction price first, when their quality perceptions of the tomatoes being transacted differ from those of the buyers, and when their tomato farm is at a large distance from the main road. Sellers stick more to their initial ask price when they know that the central market price is high. The initial ask–offer price spread decreases when the buyer speaks out the initial negotiation price first, but increases in the difference in quality perception between buyer and seller, and in the quantity of tomatoes being transacted.     

Farm demand for quality potato seed in Indonesia

Seed is the one of the most costly components of potato production in developing countries. Since potato is a vegetatively reproduced crop, diseases such as viruses build up and yield declines as tubers are saved from one harvest for use as seed the next season. Replacing farm‐saved seed with clean seed is one means to increase yield, but information asymmetry between buyers and sellers on seed quality may restrict market supply of this input. In this article we develop a model of the seed market in which clean seed is treated as a capital good providing benefits over several seasons. To determine farm demand for clean seed, we conducted a survey of 182 potato farmers in the major potato growing areas of Indonesia to elicit their perceptions of seed quality from different sources, and derive farmers' “willingness‐to‐pay” for quality potato seed. Results indicate that the effects of information asymmetry on seed supply may be partially offset by the “reputation” of specialized seed producers. Nevertheless, marginal returns to disease‐free seed appear to significantly exceed marginal costs, indicating that improving supply of quality seed will contribute strongly to productivity growth in potato. We discuss several policy options to encourage supply and utilization of quality potato seed.     

Transaction Costs and Cattle Marketing: The Information Content of Seller-Provided Presale Data at Bull Auctions

At sales of breeding bulls, prospective buyers have strong incentives to undertake presale measurement activities. To reduce these transaction costs, sellers often provide information on sale bulls. We examine the information content of two measures of the expected performance of the bulls and find that within a given herd, older, simpler measures of performance contain more information about prices (from buyers' perspectives) than newer, more sophisticated measures known as expected progeny differences, or EPDs. We also find, however, that buyers appear to pay considerable attention to annual changes in herd-average EPD values when comparing animals from different sellers.     

How do institutional market players matter in farmland pricing?

In this paper we analyse how institutional sellers within the privatisation process shape price formation in agricultural land markets by taking the German reunification as an example. These institutions sell the formerly state owned land within first-price sealed bid auctions, publish calls and obtained prices, and are hypothesised to exploit their market power. Based on the conceptual framework of hedonic pricing models, we use a spatio-temporal modelling approach to empirically quantify these impacts. We thereby control for land productivity characteristics, potential buyers and whether farmers purchase the land. We find that privatisation agencies sell at significantly higher prices, while one agency sells at lower prices to farmers.     

The Competitive Implications of Top-of-the-Market and Related Contract-Pricing Clauses

This article examines the competitive implications of contract pricing arrangements, which link the contract price to the subsequent cash price. We focus on so-called "top-of-the-market pricing" (TOMP) in cattle procurement. The TOMP clause is shown to have anticompetitive consequences when the same buyers who purchase contract cattle with the TOMP clause also compete to procure cattle in the subsequent spot market. The TOMP clause reduces packers' incentives to compete aggressively in the spot market. Although TOMP pricing is not in producers' collective interest, rational sellers may nonetheless sign these contracts with little or no financial inducement.     

The Matching Problem (and Inventories) in Private Negotiation

This study examines laboratory market outcomes under alternative matching risk scenarios and advance production. Limited access and/or asymmetry in the number of buyers and sellers cause a matching problem. When sellers hold inventory before sale and there is buyer concentration, prices are about 23% below the competitive level and close to the predicted monopsony price. The bargaining advantage shifts to buyers in this market environment. Sellers can benefit by creating alliances or cooperatives to increase their bargaining position for price and overcome poor access to buyers.     

Inventories and Public Information in Private Negotiation: A Laboratory Market Study

Using laboratory markets, this research investigates the impacts of reporting different kinds of aggregated trade information to buyers and sellers who conduct transactions through bilateral/private negotiation. There are a limited number of bargaining rounds or matches between buyer and seller pairs. Sellers hold a perishable inventory before negotiations begin. We find that knowledge of trades, along with price, improves the coordination and bargaining position of buyers. Trade prices are lower and buyer earnings are higher, relative to the no-information treatment or when just-past quantities or just-past prices are reported. Market efficiency declines as public information is reported.     

Food Safety and Adverse Selection in Rural Maize Markets

Without enforced standards or reliable third-party verification, food safety threats such as pesticide residues and aflatoxin contamination are generally unobservable or only partially observable to both buyers and sellers, especially of staple foods in rural maize markets in sub-Saharan Africa. As a result, sellers have more information about food quality than do buyers. Such information asymmetries can impede market development and undermine human health. We study farm household behaviour in the context of imperfect food safety information. We pool observations obtained from 707 food storage containers maintained by 309 farm households in Benin, surveyed following the maize harvests of 2011/2012 and 2013/2014. Our results indicate that when a household perceives a food safety risk associated with application of insecticides, on average it is 33 percentage points less likely to apply insecticides to maize it intends to consume than it is to maize it intends to sell. These individuals are also more likely to sell maize than households without food safety concerns. Results highlight the potential value of improved storage technologies and quality control to promote market transactions and reduce hidden health risks.     

EMPIRICAL TESTS OF SPATIAL AND STRUCTURAL EFFECTS ON CATTLE AUCTION PRICES

Two investigations are reported. The first is a comparison of average prices for two cattle types within pairs of some major auction centres in Australia. Significant price differences existed in three of the four cases studied. The second is a study of the main determinants of price differences between auction selling centres through a case study of a large and small auction centre. The major factor explaining the price differences between the two auction centres was lot size. This factor also influenced price variation within auctions. The number of buyers purchasing cattle did not affect price levels.     

The effects of NCPB marketing policies on maize market prices in Kenya

The Government of Kenya pursues maize marketing policy objectives through the National Cereals and Produce Board (NCPB), which procures and sells maize at administratively determined prices, and stores maize as a contingency against future shortages. A private sector marketing channel competes with the NCPB. This article estimates the effects of NCPB activities on the historical path of private sector prices in Kenyan maize markets between 1989 and 2004. The analysis is carried out using a reduced form vector autoregression model (VAR) estimated with sparse data and imposing only minimal identification restrictions. Results show that NCPB activities have stabilized maize market prices in Kenya, reduced price levels in the early 1990s, and raised average price levels by roughly 20% between 1995 and 2004. Over the past decade, the price-raising activities of the NCPB have transferred income from urban consumers and a majority of small-scale farm households that are net buyers of maize to a relatively small number of large- and small-scale farmers who are sellers of maize.     

Intermediaries in environmental offset markets: Actions and incentives

Transaction cost theory and application tells us that when buyers and sellers in a market incur transaction costs, intermediaries may become involved. Specifically, intermediaries influence the cause of the transaction costs to buyers and sellers such that transaction costs are reduced. In this paper we assess if and how this occurs for a number of case study government created and private emergent intermediaries in Australian environmental offset markets. We find that the causes of transaction costs to buyers and sellers in offset markets – asset specificity, uncertainty and transaction frequency are influenced downwards by intermediaries. The degree of influence depends on the nature of the good traded in the offset market. We also assessed if the public intermediaries studied were operating in the offset markets to reduce the incidence of probity hazard (poor transactions) from private intermediaries. We found that this was not the case.     

The economics of quality in the specialty coffee industry: insights from the Cup of Excellence auction programs

This study estimates price determinants for specialty green coffee auctions using records from the 2004–2010 Cup of Excellence programs hosted by the Alliance for Coffee Excellence. While some literature on coffee has focused on certifications and sustainability labels, the discussion of price determinants has been limited. This article replicates one of the first publications on price determinants and formulates a new model to more accurately describe the market. We include the necessary additional variables and estimate the model using a truncated maximum likelihood estimation technique. While sensory quality has a strong effect on price, the highest premiums stem from obtaining a top rank compared to other coffees from the same country, and North American buyers are more responsive to sensory quality than buyers in Asian and European markets.     

Cereal price shocks and volatility in sub‐Saharan Africa: what really matters for farmers’ welfare?

The lack of information as well as some misperceptions about the distinction between the welfare consequences of higher versus more volatile cereal prices has limited the effectiveness of policy interventions during the recent food crises in many developing countries. This article proposes an integrated empirical strategy to investigate and compare the different effects of these two phenomena and tests it using nationally representative household survey data from four sub‐Saharan countries. Results show that the negative impacts of a cereal price increase substantially outweigh the effects of price volatility on household welfare across the entire income distribution. The amplitude and the distribution of those effects depend heavily on specific factors, such as: the weight of food consumption over total expenditure; the budget share devoted to cereals; the substitution effect among food groups; and the relative number of net sellers versus net buyers accessing the market. We also show that volatility mainly harms the poorest quintile of the population.     

Contracting in the U.S. Pork and Beef Industries: Extent, Motives, and Issues

Contracting has increased significantly in the US livestock-meat sector. Over half of finished hogs and about a third of fed cattle are marketed under some form of contract. Contracting motives vary by type of contract, whether buyer or seller, and by commodity. Several motives for buyers and sellers of finished hogs and fed cattle are identified and discussed. Issues related to contracting per se and the trend toward increased contracting have been raised by contracting opponents, politicians, and economists. Several of these issues are discussed under six headings. Lastly, agricultural economists are encouraged to become actively involved in addressing these issues, especially providing pragmatic education and assistance to those involved in contracting.     

Bidding for Cattle in the Texas Panhandle

Four beef-processing plants in the Texas Panhandle region procure cattle from feedlots in a form of first-price, sealed-bid auction. These auctions have features that distinguish them from standard auctions. Using transactions-level data, we estimated packer bid functions and, via simulations, compared the extant bidding environment to an alternative framework. The simulated auctions on average produced higher seller revenue, more frequent sales to the plant valuing the cattle most highly, and more switching by feedlots among competing packers. We attribute these results to packers' inconsistent bidding on the available lots of cattle and offer alternative explanations for this behavior.     

Mandatory versus voluntary labelling of genetically modified food: evidence from an economic experiment

Opponents of the voluntary labelling scheme for genetically modified (GM) food products often argue that consumers have the “right to know” and therefore advocate mandatory labelling. In this article, we argue against this line of reasoning. Using experimental auctions we show that the quality of the signal generated by a mandatory labelling scheme is affected by the number of labels in the market. If there are two labels, one for GM products and one for non‐GM products, mandatory and voluntary labelling schemes generate a similar degree of uncertainty about the quality of products that do not carry a label.     

Spot water markets and risk in water supply

Water availability patterns in semiarid regions are typically extremely variable. Even in basins with a highly developed infrastructure, users are subject to unreliable water supplies, incurring substantial economic losses during periods of scarcity. More flexible instruments, such as voluntary exchanges of water among users, can help users to reduce risk exposure. This article looks at the effects of spot water markets on the economic risk caused by water availability variations. Our theoretical and empirical risk analyses are based on the random profits of water users. Profit probability density functions are formally and graphically characterized for both water sellers and buyers under several possible market outcomes. We conclude from this analysis that, where water supply is stochastic, water markets unambiguously reduce both parties' risk exposure. The empirical study is conducted on an irrigation district in the Guadalquivir Valley (Southern Spain), where there is a high probability of periods of extreme water scarcity. Water demand functions for the district representative irrigators and a spatial equilibrium model are used to simulate market exchanges and equilibrium. This programming model is combined with statistical simulation techniques. We show that the profit probability distribution of a representative irrigator is modified if water exchanges are authorized, leading to risk reductions. Results also indicate that if the market were extended to several districts and users that are subject to varying hydrological risk exposure, extremely low‐profit events would be less likely to occur. In sum, we show that exchanging water in annual spot markets can reduce farmers' economic vulnerability caused by water supply variability across irrigation seasons. These results support the water policy reform carried out in Spain in 1999 to allow for voluntary water exchanges among right holders.     

Testing errors, supplier segregation, and food safety

Diagnostic tests provide valuable information to buyers about credence attributes such as food safety and GMO content. Errors in testing, however, can mislead buyers and lead to problems such as adverse selection. The ability to segregate suppliers who can deliver safe food from suppliers who cannot depends on the accuracy of the test procedure. In this article we examine the effect of test sensitivity, specificity, and sampling error on the ability to segregate safe and unsafe suppliers. We find that there is a maximum level of error below which unsafe suppliers are deterred from accepting a utility maximizing buyer's bid price. The maximum error depends on the probability that a supplier's production is unsafe and the cost of producing an unsafe lot, among other things. Understanding this relationship makes it possible to design contracts and government regulations that discourage unsafe suppliers from trading.     

The value of genetic information to livestock buyers: a combined revealed,stated preference approach

DNA profile information has begun appearing in purebred bull auction catalogs; however, the value of this information is as of yet unknown. This study uses data from actual bull sales at a test station and combines it with stated‐preference survey data to determine the value of the DNA profile information. Consistent with previous research, we find that expected progeny differences (EPDs), test performance, and ultrasound information significantly influence bull‐buyers’ willingness‐to‐pay. The newer DNA profile information, however, was unrelated to buyers’ preferences. Methodologically, we find statistically significant differences (but highly correlated willingness‐to‐pay values) across the stated and revealed preference data sources.